“Businesses were highly confident about the economic outlook”, reads the commentary accompanying the June vintage of China’s Caixin services PMI.
The gauge, which was already perched at 55, rose to 58.4 for June, the highest since April 2010.
“Despite flare-ups in some places, the epidemic remained largely under control in China”, Wang Zhe, Senior Economist at Caixin Insight Group, remarked.
Although employment remained subdued, shrinking for a fifth month, the impression one gets from the balance of the recent data is that the Chinese economy has largely left the epidemic in the rearview. Some will quibble with that characterization, but that’s to be expected. One way or another (by hook or by crook), China’s overall growth numbers will look better than those for western nations going forward.
Beijing on Friday began allowing residents hailing from low-risk areas to come and go as they please, suggesting the city’s flare-up is under control. Although residents in medium- and high-risk areas continue to labor under travel restrictions, the city reported just two infections on July 2.
The Caixin print “likely offset concerns the PBoC is slowing down liquidity injections amid signs of an economic recovery”, AxiCorp’s Stephen Innes said Friday. “The PBoC is still easing, given overall economic conditions, sluggish external demand, and renewed US-China tensions and the central bank is still providing liquidity via its re-lending quota and SME loan purchase scheme”.
The CSI 300 logged its best week of the year.
Of course, it’s not all good news. “The latest data showed a further and broad-based acceleration of the economy, led by infrastructure and housing amid strong credit support [but] the recovery in private-sector demand remains lackluster, with manufacturing capex sluggish and consumption, especially services, lagging well behind”, SocGen’s Wei Yao wrote this week, adding that “the PBoC has become less generous with liquidity easing since May [even as] the delicate recovery in private-sector demand warrants more support”.
Wei also cautioned that although the latest outbreak in Beijing was “quickly contained, the fear factor is likely to further complicate the come-back of consumption”.
The upbeat read on the Caixin services gauge is welcome news in that context.
By contrast, Europe’s recovery remains a work in progress. Spain’s services PMI for June surprised to the upside, and France’s gauge remained above 50 in the final print. The final read for Germany in June was revised notably higher from the flash estimate, but remains sub-50, as does Italy’s services gauge.
Despite the stabilization, employment remains tenuous, it would seem. “In a blow to the labor market, service providers reported further cuts to payroll numbers during June, often citing redundancies and the non-replacement of leavers due to lower workloads”, the color accompanying the final June numbers for Germany explains.
“Staff numbers at French service providers continued to tumble, extending the current sequence of workforce contraction that began in March”, IHS Markit said, commenting on the situation in France, where headline PMIs are back above the 50 demarcation line. “Though still sharp overall, the latest decline was the softest for three months. Underlying data suggested that job shedding was most severe at Hotels & Restaurants”.
Speaking of France, Emmanuel Macron is orchestrating a government reshuffle in a bid to bolster his presidency after a poor showing in municipal elections last month. Prime Minister Edouard Philippe — who the FT notes “took out an insurance policy on his political future by winning a local election to be chosen as mayor of his home town of Le Havre last weekend” — is out.
“We need to lay out a new path”, Macron told French newspapers Friday. “[I] want a reinvention of aims and a method for rebuilding the country”, he went on to declare, pledging to press ahead with pension reform. “Should we consign the pension reform to the dustbin?” Macron asked himself. “No. That would be a mistake”.
Meanwhile, Angela Merkel briefly rattled sentiment with comments describing negotiations on the EU recovery fund as “rocky”. The goal, she said, is to get an agreement before the summer break. (More on the recovery fund here and here).
Merkel also said Germany is preparing “at every level” for a no-deal Brexit. And, yes, unfortunately that soap opera is still going on.
Oh, and UK pubs reopen tomorrow. “Brits will open their wallets and spend about 210 million pounds ($259 million) in pubs this weekend as they try to eat and drink their way to rescuing the beleaguered industry”, Bloomberg writes, previewing what I’m sure will be quite the scene.
“My message is really for people to enjoy summer sensibly”, Boris Johnson told LBC radio. “I hope very much that people will behave responsibly”.
